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ISDS, firm perception, investment climate
AIIB, new world order, firm strategy
Working Papers

International institutions and firms’ perception of the investment climate: Evidence from the international investment regime

- with Srividya Jandhyala

- Revise & Resubmit at Strategic Management Journal

- The Best Proposal Award in Stakeholder Strategy IG at SMS London 2022

- Finalist for the Best Paper in International Business and Policy Award (IM Division) at AOM Seattle 2022

How do firms assess their institutional environments? Beyond domestic cues, we examine the role of international institutions. In the global investment treaty regime, some firms bring legal claims against sovereign states in international venues for alleged property rights violations. Rulings by international tribunals in favor of (against) the state may be perceived as a challenge to (or affirmation of) firms’ property rights or a symbol of legitimate (illegitimate) state behavior. We compare domestic firms’ assessment of their institutional environment shortly before versus after a tribunal ruling to obtain (quasi-) random variation in firms’ exposure to international institutions. Analyzing 14,338 firm responses across 16 countries, we find support for the legitimating effect. Domestic firms assess their institutional environment more (less) favorably following a pro-state (pro-firm) ruling.

How do multinational firms respond to country positioning in the new world order? Evidence from the effect of country membership in the Asian Infrastructure Investment Bank on foreign direct investment

- with Raffaele Conti and Srividya Jandhyala

- Reject & Resubmit at Strategic Management Journal

China’s economic growth and efforts to increase its influence in the global arena are shaping a “new world order”. For multinational corporations (MNCs), understanding where a host country will stand in this future world order is of tantamount importance but, in a time of transition and uncertainty, they have to rely on signals. We conceptualize a country’s membership in the China-backed Asian Infrastructure Investment Bank (AIIB) as a key signal of closer political and economic positioning to China. We examine how MNCs perceive and respond to such a signal. On the one hand, MNCs might increase investments if they perceive AIIB membership as offering greater economic opportunities due to connections with a rising economic power. On the other hand, MNCs might lower investments if they associate AIIB membership with greater political risk from possible Chinese influence in the host country’s internal and international affairs. Using a difference-in-differences approach, our empirical analysis of 183 countries between 2005-2020 suggests that, on average, AIIB membership is associated with an increase in foreign direct investments. However, the effect is positive only for democracies, where competitive markets and stronger checks and balances enhance the positive effects of access to the Chinese market while limiting undue Chinese political influence.

Other working papers
  • Policing the world? Effect of U.S. anti-corruption enforcement actions on non-targeted firms 

  • Strategic determinants of investor-state dispute settlement 

  • Managing corruption demands: Can foreign firms arm themselves with home-country regulation


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